Question

Jackpot Mining Company operates a copper mine in central Montana. The company paid $1,250,000 in 2021 for the mining site and spent an additional $650,000 to prepare the mine for extraction of the copper. After the copper is extracted in approximately four years, the company is required to restore the land to its original condition, including repaving of roads and replacing a greenbelt. The company has provided the following three cash flow possibilities for the restoration costs: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

	Cash Outflow			Probability
1	$	350,000		25%
2		450,000		40%
3		650,000		35%

To aid extraction, Jackpot purchased some new equipment on July 1, 2021, for $230,000. After the copper is removed from this mine, the equipment will be sold for an estimated residual amount of $20,000. There will be no residual value for the copper mine. The credit-adjusted risk-free rate of interest is 10%.

The company expects to extract 10.5 million pounds of copper from the mine. Actual production was 2.1 million pounds in 2021 and 3.5 million pounds in 2022.

Required:
1. Compute depletion and depreciation on the mine and mining equipment for 2021 and 2022. The units-of-production method is used to calculate depreciation. (The expected format for rounding is presented in the appropriate rows of the table. Round your final answers to nearest whole dollar.)

Restoration costs:	Cash outflow	Probability	Probable Restoration Cost
Possibility 1	$350,000	25%	$87,500
Possibility 2	450,000	40%	180,000
Possibility 3	650,000	35%	227,500
			$495,000
Table or Calculator function:			PV of $1
		n =	4
		i =	10%
Present value of probable restoration costs			$338,085
Cost of copper mine:
Mining site	$1,250,000
Development cost	650,000
Restoration cost	338,085
	$2,238,085
Depletion expense (mine):	2021	2022
Depletion per pound (#.####)	?	$0.0000
Pounds extracted		?????
Depletion expense	??????	????
Depreciation expense (mining equipment)	2021	2022
Depreciation per pound (#.##)	?????	$0.00
Pounds extracted	?????0	?????0
Depreciation expense

Answer 1